Egypt bank rating drops from positive to stable

Thomson Financial BankWatch, the bank agency rating, recently announced that it was cutting Egypt's Sovereign Risk Rating outlook down from positive to stable, although the country’s risk rating prese

Thomson Financial BankWatch, the bank agency rating, recently announced that it was cutting Egypt's Sovereign Risk Rating outlook down from positive to stable, although the country’s risk rating presently remains unchanged at BB+.

The previously more positive outlook had been selected in the belief that the pace of the country's economic reform would quicken with the appointment of a new cabinet in October 1999. The change in outlook, however, resulted due to non-implementation of reforms, which are cardinal in securing economic stability and allowing for a higher investment rating. Additionally, Thomson Financial BankWatch added that additional concerns included poor fiscal trends, slow progress toward privatization, and various negative outcomes resulting from the country's fixed exchange rate.

Standard and Poor's also lowered Egypt's outlook from stable to negative in July, and warned that although its rating presently remained unchanged, it might downgrade it if the Egyptian government does not alter its budgetary regulation, strengthen its private sector, and change its monetary policy so that it is more transparent and flexible.

Although the government has taken steps to bring the Egyptian Pound to its proper value by using a "de facto devaluation," though still maintaining a low inflation rate, Thompson claims the currency is still overvalued by at least 10 percent.

Despite the Egyptian government’s promising that the country’s the fiscal deficit would be about 1 percent of GDP, the government revealed in late June that the actual deficit for the full fiscal year 1998-1999 [July/June] equaled 4.2 percent of GDP. Although the figure is not dangerously high, it does suggest that the country's fiscal position is weaker than anticipated. The deficit for the 1999-2000 fiscal year is expected to be 3.7 percent of GDP.

However, the new Egyptian cabinet has recently begun showing better economic management, such as the 1 percent devaluation of the Egyptian currency since May.

However, privatization appears to have been placed on the back-burner. Private investments in public-sector banks is still government-restrained, and the government’s procrastination of privatizing both Telecom Egypt and public-sector electricity companies has reportedly led investors to lose confidence in the government's reform promises. — (Albawaba-MEBG)